23. April 2019 | EDP Wire | Prakash Bhattarai

The New Federal Structure in Nepal: Challenges and Opportunities for Quality Governance

This EDP Wire was written by Dr. Prakash Bhattarai, Director of the Centre for Social Change in Nepal and a former PRIF guest researcher by invitation of the EDP Network. In his article, he argues that if managed well, the new federal structure of Nepal as provisioned in the Constitution of 2015 has an immense potential to promote local democracy and equip citizens with fundamental rights but also finds that Nepal is practicing federalism in the midst of fear, mistrust, and dubious mind-sets of political elites without a clear vision of its future. Prakash concludes that fully autonomous federalism cannot be achieved unless strong trust between political elites and citizens is created and that the future of federalism is determined by the effective and efficient delivery of services, civic space, citizens’ accessibility in governance processes, the governing style of the elected leaders and their accountability towards citizens, and a clear division of power and responsibilities between different tiers of government.


The Constitution of Nepal 2015, replacing the Interim Constitution from 2007, defines Nepal as a federal democratic republic and provisions three tiers of government: local, provincial, and federal. Since the last democratic election held in November 2017, Nepal consists of 753 local governments, 7 provincial governments, and one federal/central government.  Local and provincial governments hold a variety of political, fiscal, as well as administrative powers, while there are also concurrent powers with the federal government. As per the current constitutional provisions, 35 political, fiscal, as well as administrative powers are given to the federal government, 21 to the provincial governments, and 22 to the local governments. At the same time, there are 25 concurrent powers between federal and provincial governments, whereas 15 are shared between federal, provincial, and local governments.

If managed well, the new federal structure of Nepal has an immense potential to promote local democracy and equip citizens with fundamental rights. Through the new governance structure, local governments, for the first time in Nepal’s political history, have received quite a high number of independent and concurrent powers, which can help foster a holistic development at the local level. Along with the powers, local and provincial governments have also received modest financial grants from the federal government, as well as the authority to collect taxes through different means. The new federal structure is also an opportunity to change the centralized mindset of people through effective delivery of services at the local level. At the same time, mismanagement of the new federal structure could trigger multifaceted conflicts.

The first year of implementation of the new federal structure in Nepal has experienced a number of challenges. If the warning signs are not taken seriously, they have the potential to damage the entire governance system. Likewise, for many years, Nepal practiced a unitary governance structure where major political and developmental decisions were taken at the central level. While local governments were excited about the new system, they had no power to bring radical change. In order to make the new system work, it is crucial to pay attention to change the mindset of people, bureaucrats, and political leaders.

Current debate

Currently, three major issues are under debate with regard to federalism. First, the naming process of the provinces and the question of where their headquarters should be located, as it has been an unsettled issue for some of the provinces. Second, the power sharing model between the three tiers of government needs to be operationalized through the formulation of laws and policies. Third, there are operational issues with regard to federalism, mainly including issues such as, a) the overall direction of the new federal structure and its relevance to the devolution of power and ensuring the effective delivery of services, b) the communication and coordination between the three tiers of government regarding the functional division of power and authorities, and c) the operational costs to run and sustain federalism. All in all, there is a dominant conversation around administrative, political, and fiscal federalism, but very limited interactions around the social, behavioural, and civic participation aspects of federalism.

It can be argued that the new federal structure is full of challenges. Key administrative challenges are for example the management of bureaucracy in the federal structure and recruiting or placing of well-trained and -intended staff at the local and provincial governments. The legal challenges, particularly the formulation of laws and policies without curtailing citizen’s rights and lessening contradictions and confusions around the formulation of laws and policies on all governmental levels is equally important to make the new federal structure pro-people.

When it comes to economic challenges, the implementation of the new federal structure is considered to be costly, as Nepal is supposed to set up a new administrative as well as physical infrastructure. Furthermore, mechanisms for the allocation and distribution of adequate financial and natural resources among provinces are yet to be built. So far, provincial and local governments are heavily reliant on federal funding and they are yet to explore the locally viable economic development opportunities. Other resource mobilization issues such as the proportional distribution of resources, increasing the fiscal management and decision-making power of the local and provincial governments, diminishing the risk of corruption, and investing in structural public policy changes are also quite prominent.

Power struggles at different levels and among different actors can be considered a threat to the successful implementation of the new federal structure. For instance, local governments have seen provincial governments as a threat to exercise the given constitutional powers. Some tensions between the provincial and federal governments have also been observed, especially in the case of taking control of local security agencies as well as managing the local bureaucracy. There are also some tensions between mayors and deputy mayors in the course of exercising power. Division of power and authority between elected local leaders and government officials created other problematic issues in many local governments. Tensions between elected leaders at local governments and his/her party command regarding the mobilization of local governments’ resources has also been observed in some cases.

Continuation of distributive development processes by the new governance bodies with fewer efforts in bringing structural changes in public policy agendas is considered similar to the style of former governments. Likewise, launching development projects without adequate planning and undermining the socio-economic viability and ecological aspects of projects are additional development challenges associated with the operation of the new federal structure.

There is also a growing concern that civic space to express citizens’ grievances is shrinking gradually in the new federal structure. The lack of active grievance handling mechanisms and multi-stakeholder interactive platforms in different governance structures further contributes to the deterioration of conflicts and disappointments. There is also a widespread criticism that elected leaders in all three tiers of government are taking arbitrary decisions to formulate laws and policies with no or limited consultation with citizens’ groups and civil society organizations. Furthermore, criticism that elected leaders lack functional knowledge and capacity to deliver development policies and address the challenges associated with changing dynamics of governance is spread.

What can be done?

There are widespread believes that the new federal structure of Nepal is not functioning well, as many people doubt that leaders and bureaucrats are equipped with sufficient knowledge and an appropriate learning attitude regarding their roles and responsibilities in the new system. Due to the limited function of local and provincial governments, we have seen further negative impression about political leaders, political parties, and even the system itself. It is therefore of enormous importance to take adequate action from the government and civil society for the better functioning of the new federal structure in Nepal.

First and foremost, a critical review and reflection among key stakeholders from the central to the local level is necessary regarding the performance of the new federal structure. Such reviews should specifically focus on responding to critical questions such as what the new federal structure could deliver within a one-year and a five-year timeframe and how the roles and responsibilities of different actors should look like.

Second, expectation management in the context of the transitional governance structure is crucial. High expectations of people and leaders’ promises to meet those expectations have made it quite difficult to establish the new system and find supporters within the broader society. In this regard, the communication of elected leaders with the people regarding their performance, reasons behind underperformance, and plans for the next few years is crucial. An honest and trustworthy communication in the form of white paper statement, public hearings, or media conferences can play an important role to manage people’s expectations.

Third, political, economic, psychological, and behavioural preparedness is also important to move from an old to a new governance system. Since Nepal had a unitary governance system for many years, leaders, citizens, and bureaucrats are accustomed with the culture and practice of the former system. Shifting towards the federal governance structure requires the simultaneous federalisation of mindsets, policies, and implementation processes.

Fourth, adequate knowledge and capacity development opportunities for elected local and provincial government leaders and bureaucrats are of importance. Issues that should be tackled to increase the effectiveness of the new system are: development planning, fiscal management, resource mobilization, and monitoring and evaluation of projects and programs.

Fifth, the new federal structure should focus on structural changes, particularly on public policy agendas. For this, a shift from distributive development to structural reform and balanced development with equal attention to social, economic, and infrastructure development is prerequisite.

Sixth, addressing the needs and concerns of socially deprived people should be another key focus of the new federal structure. In this regard, governments should focus on creating sustainable economic development opportunities at the local level and encourage marginal groups to run their own enterprises. Likewise, existing practices of concentrating resources and development programs in areas of powerful leaders and strong lobbyists should be eliminated. Furthermore, the introduction of a just tax policy remains another critical issue. All three tiers of government should impose fewer taxes on economically weak people, whereas more taxes should be imposed on those making big profits through monopolies within the local economy.

Finally, adequate provisions to create a wider civic space where citizens, institutions, opposition parties, and others can express their concerns through nonviolent approaches should be taken. Along with the formation of a broader civic space, the new federal structure also requires functional ‘concern handling mechanism’ to address conflicts within and between local, provincial and federal governments. Additionally, monitoring mechanisms within and beyond governments to provide regular feedback regarding the function and effectiveness of the new federal structure are crucial to successfully implement the new governance structure.


Nepal is practicing federalism in the midst of fear, mistrust, and dubious mindsets of political elites without a clear vision of its future. Fully autonomous federalism cannot be achieved unless strong trust between political elites and citizens is created. For this purpose, constructive, open and broad dialogue at different levels is necessary. The dialogue should not be focused on whether Nepal needs federalism, but rather on how to make the new governance structure pro-people with respective roles played by the political leaders, elected leaders, citizens, and international community. At the end of the day, the future of federalism is determined by the effective and efficient delivery of services, civic space, citizens’ accessibility in governance processes, and the governing style of the elected leaders and their accountability towards citizens. Furthermore, the relationship between elected leaders and government officials, and a clear division of power and responsibilities between the three tiers of government is crucial.

Federalism is still a contested and unsettled issue in Nepal. Broadly, five contesting groups exist: the first group is happy with the existing federalist system, mainly powerful political elites belong to this category. The second group completely opposes the idea of federalism. Political parties such as the National People’s Front, a few leaders from each political party, and a group of citizens who were happy with the unitary system belong to this category. The third group, which includes the majority of citizens and a large segment of cadres from all political parties not being represented in local, provincial, and federal bodies have internalized federalism, but are not happy with how it is functioning. The fourth category, which includes Madhesh province based parties and some elected leaders from provincial governments, even ministers and chief ministers, have wholeheartedly accepted the idea of federalism but are not happy with the provincial governments’ power and authority. The final category involves the splinter group of Maoists, which is completely dissatisfied with the existing political system and leadership and thus wants to fight against the state to establish a different system, though it is not quite clear yet how that system might look like. In summary, the future of federalism in Nepal, among many other things, will largely be determined by the nature of interaction and cooperation between these contested groups.

For more information, you can contact Dr. Prakash Bhattarai directly via his email address: prakash.bhattarai@gmail.com

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